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Home / Business / Warren Buffett may be wrong about Tesla's ambitions for insurance – The Motley Fool

Warren Buffett may be wrong about Tesla's ambitions for insurance – The Motley Fool



When Tesla (NASDAQ: TSLA) published disappointing results for the first quarter a week ago, most headlines were unsurprisingly about the steep sequential decline in electric vehicle manufacturer deliveries, and thus also far wider than expected quarterly net loss. Tesla boss Elon Musk put the lights on at the end of the tunnel, suggesting that deliveries would recover in a short amount of time, affirming that they would confirm the full year for the delivery of 360,000 to 400,000 vehicles in 2019.

But something else ] Musk confirmed shock waves in another industry in the following conference call: Tesla not only creates its own insurance product but also hopes to launch this product by the end of this month to be able to.

  two people looking through a clipboard of documents with red and white cars in the background

IMAGE SOURCE: GETTY IMAGES.

Musk added that Tesla's insurance "will be much more convincing than anything else." In particular, says Musk, Tesla wants to benefit from a "sizable price [and] Information Arbitrage Opportunity" by using unique customer data collected from its vehicles.

Warren Buffett is not so sure

Speaking at Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) Annual meeting on Saturday, but the chairman and Berkshire CEO Warren Buffett suspected that Tesla's insurance efforts were likely to fail.

] Almost a third of Berkshire's entire business is insurance, with Geico and General Reinsurance in particular as subsidiaries, and Buffett is clearly in a unique position to speak as an authority on the matter.

"It's not easy business," said Buffett. "The success of automotive companies entering the insurance business is likely to be as likely as the success of insurance companies entering the automotive business."

Buffett set a precedent that even confirmed Tesla's data-centric approach, namely: [1

9659014GeneralMotors had a long-time company called Motors Insurance Company. And different companies have tried. […] I'm much more worried about Progressive . And I would bet that every company in the automotive sector (19459027) is an unusual success. The idea of ​​using telematics to study people – it's important to have data on how people drive, how much they brake, how much they deflect, and whatever. So I do not doubt the value of the data. But I do not think the automakers will benefit from that. I do not think they will make money in the insurance business.

Of course, Buffett spoke of the cuff as a potentially disruptive, competitive solution for car insurance and with presumably little knowledge of Tesla's specific plans. 19659003] But before Buffett's prediction is accepted as a gospel – and with all due respect for what is arguably the largest investor and CEO ever – consider that Buffett is also the first to admit he's not always right.

Why the Oracle of Omaha Might Be Wrong

First, at least in the short term, it may not be Tesla's primary goal to "earn money in the insurance business".

Rather, the greater short-term benefit of a Tesla insurance plan could be This has been achieved by streamlining Tesla property experience and achieving additional cost savings for Tesla drivers in addition to their now non-existent gas bills. Further reducing the entry barrier into the world of Tesla could thus create a significant network effect that significantly increases vehicle orders.

Second, some skeptics have already speculated that Musk will not provide any specifics during the call – This could be a repeat of the previous "funding-backed" tweet debacle that left Elon Musk in hot water with the SEC last year.

But we already know that Tesla is not alone. In fact, Tesla has resorted to the help of a specialist insurance company – and, ironically, one of the market's most popular "Mini-Berkshire" properties – Markel (NYSE: MKL) . In response to an investor question during his quarterly teleconference last week, co-CEO Richard Whitt confirmed that Markel's state-owned subsidiary will take over the insurance for Tesla's insurance.

Whitt described State National, which Markel acquired in 2017. Company that provides […] sanitary facilities to transfer the risk to capital, "helping clients overcome difficult regulatory barriers, set interest rates, and substantially realize their new ideas."

Ideas have a hard time navigating the regulatory environment and honestly implementing their innovative ideas. Here State National can come to the table and help them. State National offers just that in its partnership with Tesla. They support innovative solutions that Tesla [created] has with risk-averse partners.

According to this framed model, Whitt stated that State National will not retain any of the resulting insurance business. Rather, he says the deal will be ceded to the nameless risky affiliate that Tesla actually secured this time.

Bottom Line

"And I do not want to say" Whitt shut down "because obviously Tesla and the risky partner have many things they're probably going to say about the arrangement.

That means right now Investors need to hurry up and wait for Tesla's more paint on upcoming insurance launch – without that color, though, it's hard to tell if the product will be a success, but until then, I think it would be a mistake to assume that this notoriously disruptive company can not succeed in the insurance world.


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